LUMPENPROLETARIAT—One of the more inspiring and important developments in modern economic theory is modern monetary theory, or modern money theory. Understanding how modern money works today in a post-gold standard world, when sovereign currency issuers, such as the USA, can employ modern money for public purpose, we come to find that such a federal government can never go broke. [1]

AGAINST THE GRAIN—[5 APR 2016] A number of thinkers and activists on the left have embraced the notion of a basic income paid to all without means testing or a work requirement. Erik Olin Wright argues that a generous basic income would contribute to revitalizing a socialist challenge to capitalism. He also distinguishes the version of UBI that he supports from that pushed by some on the right.

“From the studios of KPFA in Berkeley, California this is Against the Grain on Pacifica Radio. My name is C.S. Soong.

“It may sound weird. It may sound utopian. But an unconditional basic income is what many people have been advocating for years. You would not have to work to get this income. Everyone would be entitled to it. And, in some scenarios, it’s enough to live on.

“So, what explains the appeal to many on the Left of the basic income? Why have some conservatives and libertarians embraced the idea? Would the economy collapse because most people would stop working? And to what extent would the adoption of an unconditional basic income facilitate or fuel a transition away from capitalism?

“Erik Olin Wright is a leading proponent of a basic income and a prominent radical scholar. He’s a professor of sociology at the University of Wisconsin-Madison. And his books include: Understanding Class; Alternatives to Capitalism; and Envisioning Real Utopias.

“When Erik Olin Wright joined me in KPFA’s Berkeley studios, I asked him when the notion of a basic income first caught his attention.” (c. 7:03)

DR. ERIK OLIN WRIGHT: ” [SNIP] ” (c. 8:30)

C. S. SOONG: “So, in titling their paper The Capitalist Road to Communism, were they suggesting, then, that something could be done within the framework of capitalism to move society in a communist direction?” (c. 8:46)

DR. ERIK OLIN WRIGHT: ” [SNIP] ” (c. 10:00)

C. S. SOONG: “So, what would an unconditional basic income, what would it, basically, entail?”

DR. ERIK OLIN WRIGHT: “Alright. Well, the first thing to note is that the idea of unconditional basic income comes in a variety of flavours. And, depending upon which flavour, it means different things.

“For some people, an unconditional basic income is really a bare minimum survival income. You know? To use a kind of metaphor, you don’t starve if you have a basic income.

“Most progressives, who embrace the idea, think of it as a more generous idea, that a true unconditional basic income enables you to live at a culturally-acceptable decent standard of living, which would include, therefore, enough income to have recreation, but a kind of no frills version. So, you can perfectly, comfortably, get by with it. But, if you really want to live a more extravagant lifestyle, then you have to earn additional income one way or another.

“So, that’s how I like to think of it. Certainly, for the purposes that I defend an unconditional basic income, it’s above a survival level.” (c. 11:14)

C. S. SOONG: “And who, in your idea of a basic income, who provides this income and how often?”

DR. ERIK OLIN WRIGHT: “Well, income means it’s a flow. So, it’s more of a practical than a principled question of whether it’s providing it, so to speak, on a weekly or monthly basis. Some versions give you an annual lump sum. I think that’s probably not prudent, just because of people’s incapacity to budget well.

“So, [chuckles] you know, you think of it as a paycheck. So, paychecks typically come on biweekly or monthly bases. It would be a flow of income along those lines. (c. 11:49)

C. S. SOONG: “It doesn’t depend on whether you work or any other criterion.”

DR. ERIK OLIN WRIGHT: “Right. Crucially, it doesn’t depend on how much money, how rich you are. The unconditionality has, both, a moral component—you don’t have to be a good person to get it—and it has an economic component—it’s not means tested.

“Now, of course, the taxes needed to pay for an unconditional basic income for Bill Gates are gonna go up by many orders of magnitude, more than the basic income he receives. So, Bill Gates would be a net contributor. And there’s lots of details about how that works.

“One should think of it in the same way we think of unconditional, or used to think, perhaps, of unconditional basic education. Everybody gets it. Some people are net contributors. That is, their taxes go up in order to pay for public education by more than they receive in public education. But that’s seen as okay because it’s a public good; and it makes for a better society, if everybody gets a basic education.

“Well, a basic income has a bit of that character. Everybody benefits from it, even if you’re a net contributor because it creates a different kind of society, a society in which everybody has enough to live a morally decent, or culturally acceptable, standard of living.” (c. 13:20)

C. S. SOONG: “So, what impact would an unconditional basic income have on people’s ability and inclination, really, to take a job, to go into the labour market and work for money?” (c. 13:37)

DR. ERIK OLIN WRIGHT: “Well, let me first clarify one other detail about the design. And that is who gets it. So, we said it’s unconditional on means testing or on virtue. There is still the question of whether, for example, it’s a citizen’s income or a resident’s income. That is, anybody who lives in a country, anyone under the jurisdiction of a state should get it. And, if it’s a resident’s income, does it include undocumented workers?

“Now, to some extent these are practical questions, rather than principled questions. I mean practical in the political sense. It’s pretty hard to imagine an unconditional basic income ever passing, you know, even in pretty progressive places, that would include illegal residents. Everybody agrees that tourists shouldn’t get it. [chuckles] You know? [SNIP]

“I think, on principle, it should go to everybody who’s in the economy, in the labour market, in the labour force. That the question of how you deal with the illegal migrants is a separate question, which needs resolution. We need ways of dealing with that. But that the moral principle of an unconditional basic income is precisely that anybody who is on your territory participating in the economic life of your society should unconditionally have their basic needs met.

In the most fundamental sense, I think an unconditional basic income should be for everybody in the world. I mean I think you should have a goal of a basic income.” (c. 15:18)

C. S. SOONG: “Mm. M-hm. Yeah.”

DR. ERIK OLIN WRIGHT: “And it should be globally distributed. Well, that’s certainly not on as a practical political move.” (c. 15:25)

C. S. SOONG: “Erik Olin Wright joins us in studio. He is professor of sociology at the University of Wisconsin-Madison and a leading radical thinker. I’m C.S. And this is Against the Grain on Pacifica Radio. And we are talking, today, about unconditional basic income, which Erik has written a lot about and thought a lot about.

“So, yeah, back to this question of jobs and the necessity of having a job. So, if the basic income, the unconditional basic income gives you, provides you with, kind of, a culturally-acceptable no frills existence, then is the whole idea that people would no longer need to go out onto the labour market?” (c. 16:11)

DR. ERIK OLIN WRIGHT: “The idea is that you don’t need to go into the labour market to get your basic necessities. So, in the United States, roughly speaking—and, you know, it varies from place to place because of cost-of-living—but think of an unconditional basic income as being in the $12- to $15-thousand-dollars-a-year range, roughly speaking, which would mean if, um, two adults live together, they have a household income of $30,000. You’d have to think through the details of children. You know? Do you get a partial income? How do you do it? Again, those are important details. You can put those to the side.

“So, just take a couple. $30,000 dollars in most places in the United States, you can live okay.

“But most people probably want more income than $30,000. So, there’ll be at least some reason why many—I think most people—will want to gain additional earnings.

“With an unconditional basic income, as soon as you earn additional income, you start paying taxes on the additional. There’s no, the unconditional basic income isn’t taxed. It’d be, kind of, directly. If all you live on is the basic income, you don’t pay taxes, income taxes, on that. But you start paying taxes on any earnings above your basic income.

“The tax rates will be higher. You have to figure out exactly where the cut point is, where you become a net contributor, rather than a net beneficiary.

“But there’s no disincentive to work. That is you’re not—the first $10,000 you earn above your basic income is not gonna be taxed at 80%. You know, it’ll probably have a 15% or 20% income tax rate on the first $10,000 you earn above a basic income.

“So, the first thing to note is there is not a disincentive to work.

“And it’s only people whose life plans are consistent with $15- or $30 thousand, in a couple, whose life plans are consistent with that level of earnings who will say: That’s all I want.

“Now, there will be people, certainly, for whom that’s true.” (c. 18:15)

C.S. SOONG: “But, if they think that way, that is a disincentive to work. I mean a lot of people are worried that so many people will take themselves out of the labour market that the economy might even collapse.”

DR. ERIK OLIN WRIGHT: “So, just to be kind of technically precise, a disincentive means you’re punished if you work. This would—”

C.S. SOONG: “Gotcha.”

DR. ERIK OLIN WRIGHT: “—mean a lack of an incentive to work for them. Right? So, they don’t feel any incentive to work ‘cos they feel no need to work. But there’s no disincentive to work.

“With means tested anti-poverty programmes there’s an actual disincentive to work because you lose your benefits if you work.”

“Yeah, so a basic income is an unworkable plan if it’s the case that the large majority of people really have as their deepest longings to be couch potatoes.

“So, you know, if the human spirit, contrary to what many of us believe, is really profoundly lazy, in the sense that we don’t care about creativity—we don’t care about making a contribution to our world and leaving our stamp in some way or other, we really just wanna watch soap operas—so, if that is what we are at our essence—you give people $15,000 dollars and everybody stops working—the system collapses.

“Well, I’m being sarcastic. You know?”

C.S. SOONG: “Sure.”

DR. ERIK OLIN WRIGHT: “This is a caricature. There will be some people, though, that will absolutely live a life of leisurely indulgence.

“Philippe Van Parijs, one of his earliest and terrific pieces on this is called ‘Should Surfers Be Fed?’ ‘Should Surfers Be Fed?’ And it’s basically raising the standard big objection to basic income that it will mean that people who work hard and generate the income that gets taxed for a basic income will be subsidising beach bums.” (c. 20:13)

C.S. SOONG: “But you could, certainly, maybe, with a basic income you could be a beach bum; but you could also be productive in a way, that’s not profitable to you—right?—that doesn’t involve working for money.

“So, for example, you talk about, you’ve written about care-giving labour. And the fact is that many care-givers are not compensated at all. Well, this will allow them to do work. And, you know, this is not couch potato work. So, they’ll do work. That kind of work, they won’t have a job for money, for pay. And, so, how does that work in the context of basic income and to what extent is that a positive thing in your eyes?” (c. 20:53)

DR. ERIK OLIN WRIGHT: “Of course, it’s an absolutely positive thing. [SNIP] And it would lead to an absolute expansion and enrichment of the arts.” (c. 23:46)

C.S. SOONG: “I’m C.S. This is Against the Grain on Pacifica Radio. Erik Olin Wright joins me. He is Vilas Distinguished Professor of Sociology at the University of Wisconsin-Madison. And he’s author of many books, including Understanding Class, Envisioning Real Utopias, and Alternatives to Capitalism: proposals for a democratic economy with Robin Hahnel.

“And I, and Erik, want you to know that many of Erik’s books are available for free online. We’ve put a link on our web page at KPFA.org. Just go to KPFA.org/programs and click on Against the Grain; and you’ll find a link to Erik’s website, where you’ll find PDF links to many of his publications.

“So, essentially, what you’re saying is that workers have more power, they have greater leverage in relation to employers under a system with unconditional basic income. And is that part of the reason? Well, how big a part of the reason that you support unconditional basic income is this? That there are unequal power relations in society and that an important goal of movement for social justice ought to be to adjust and transform those power relations.” (c. 27:22)

[1] The topic of Modern Monetary Theory (MMT), or Modern Money Theory, is something, which we’ve been lagging to present on Lumpenproletariat.org. (Your author has published some articles on MMT at MediaRoots.org some years ago.)

MMT presents many emancipatory implications for the working class, such as the use of modern money for public purpose, or beneficial public spending at the federal level, which is conducive to full employment, such as a job guarantee programme, and more. Technically speaking, if President Obama (or any administration) understood, or acknowledged, MMT, we could implement a job guarantee (or an income guarantee), which could end involuntary unemployment today. As heterodox economist Dr. L. Randall Wray, a former UMKC professor of mine, teaches us, it’s not a lack of economic options, which prevents full employment, it’s a lack of political will.

As another of my UMKC professors, heterodox economist Dr. Stephanie Kelton, teaches us: There are no fiscal constraints. The only constraints are real resource constraints. Dr. Kelton is a Chief Economist for Bernie Sanders’ 2016 presidential campaign and priorly served as the Chief Economist for the Senate Minority Budget Committee under Bernie Sanders. [4]

In the following video, Dr. Stephanie Kelton discusses MMT, mainly as it applies to the national budget deficits, debunking the myth that budget deficits are necessarily bad for the USA’s economy. But Dr. Kelton also discussed the job guarantee programme and the basic income guarantee, among other things, which could be addressed by MMT (as emphasised by the transcript excerpt below).

“The Angry Birds Approach to Understanding Deficits in the Modern Economy” by heterodox economist Dr. Stephanie Kelton (University of Missouri-Kansas City), November 2014

[Transcript excerpt by Messina for Lumpenproletariat, Dr. Stephanie Kelton, and Dr. John Henry, who taught Dr. Kelton as well as your author]

DR. STEPHANIE KELTON: (c. 56:48) “We could be doing useful things [with an understanding of modern money]. Right? We’ve got infrastructure, that’s dilapidated, falling down. The civil engineers tell us we need to spend $3.6 trillion dollars to repair ports, bridges, water treatment facilities, schools, hospitals, national parks. The whole of our national infrastructure is given a grade of D+ by the American Society of Civil Engineers. And we’re told we ought to spend $3.6 trillion to get it up to snuff. We could do that. We have tons of people who are out of work, mechanical skills, construction, and so forth. We could do that.

“We could enhance retirement schemes, instead of attacking them, undermining them, and trying to weaken them, to cut benefits, and so forth. We could make it safer, more secure, more generous. We could do that.

“We could deal with climate change.

“But the question, now, is always: How are you gonna pay for it? We’ve answered that question[—by understanding how money works in a modern economy].

“We could help students cope with student debt. Many people believe there’s a crisis with student debt in this country. Now, student debt is surpassing credit card debt. There’s over a trillion dollars of student loan debt out there. There are lots of politicians who—well, not lots. There are some politicians who are working to promote legislation to help alleviate student debt burdens. There’s even a movement to strike the debt.

“There are ways to help young people, who are struggling with student debt, who, as a result of all that student debt, are postponing household formation. They’re living at home longer, so they don’t get their first apartment. They don’t marry. There’s so many starting everything later. And it’s delaying a lot of spending in the economy. It’s got a lot of hedge fund managers, quite frankly, and others quite worried about future consumption and how robust the economy’s going to be going forward because of the student debt. (c. 58:52)

[Addressing Inequality]

“We’re hearing a lot about inequality. Right? Since 2009, when the U.S. officially left recession and went into recovery—okay, we’re in recovery mode; output is growing, income is growing—90% of all the income gains over that period of time since 2009, 90% has gone to the top 10%. Within that category, to the top 1%. Within that category, to the top point-one percent [i.e., 0.1%]. And within that category, to the top point-zero-one percent [i.e., 0.01%].

“If we continue to distribute income gains in this way, where the income gains are going to those least likely to—”

AUDIENCE: “—spend it—”

DR. STEPHANIE KELTON: “—and most likely to—”

AUDIENCE: “—save—”

DR. STEPHANIE KELTON: “—and, especially, save in the form of—”

AUDIENCE: “—[inaudible].”

DR. STEPHANIE KELTON: “Well, no. They like real estate and stocks and stuff like that. Right? And, so, they buy assets. And this tends to push asset prices higher, which has a lot of folks, including Janet Yellen, worried that we are, the Fed has been creating bubbles, asset price bubbles. (c. 1:00:03)

“And the problem with bubbles is, it’s nice to ride a bubble up. But when the bubble pops, there’s a lot of collateral damage. Okay? So you’re hearing a lot.

“People talk about a basic income guarantee. You hear a lot about that now. Just give everybody money. Right? No matter how much money you have, we’ll give you money, too. Everybody gets a check. It’s Oprah. You get a check. And you get a check. And you get a check. But Bill Gates gets a check. Everybody gets a check.”

AUDIENCE: “[laughter]“

DR. STEPHANIE KELTON: “The problem with that scheme is that, while it gives more income to those at the bottom, it gives the same amount to everyone else. So, it’s a ratcheting up of everyone, which does nothing, of course, to deal with inequality.

“But, if you focus on those at the bottom, the unemployed, the least skilled and so forth, and you guarantee employment with benefits and so forth, you’re lifting incomes for those at the bottom and reducing inequality. So, there are just lots and lots of things, that we could do.

“But if we don’t do them, if we don’t do them and we continue to have government pull back its contribution, the only way that we’re gonna keep this economy going, the only way the game is gonna continue and the pieces are gonna go around the board is if we have bubbles—because bubbles work for a while; the problem is that eventually they pop—debt—we can have the private sector leverage back up. They did this in the late ’90s, the mid-to-late ’90s and into the 2000s. We borrowed like crazy. We took the equity out of our homes. We borrowed against perceived increases in wealth because stocks were booming and so forth.

“We can drive this thing with private-sector debt for a while. The trouble is that, too, tends to end badly.

“We can focus on trade with the rest of the world. Well, we’re just gonna dig ourselves out of this by reversing our trade deficits. We just need a weaker currency here at home.

“You can try all this sort of stuff. These are not good solutions. There’s a better way to do this. But we’ve gotta get the thinking right. We gotta get the thinking right.

“And, so, it’s okay to have differences. It’s okay to have parties, who disagree about the proper role for government, priorities, spending versus taxes. But we want the disagreements to move in the right direction. We don’t want them to say: We need higher taxes and less spending. We want them to fight over whether to have lower taxes or more spending. That would be, at least, a debate, that is moving in the right direction.

“So, it’s not that we all have to think exactly the same way. But, if we get the thinking right, somewhere in the middle, we might end up okay. (c. 1:03:06) [SNIP] “

“Part #1: Dr. John Henry is a UMKC professor of economics focusing on the history of economic thought. He is the author of two books and numerous articles. He had taught at California State University-Sacramento, and at Cambridge and Staffordshire, England. John shared the view of the inadequacy of economics to quantify the costs of war.

“On March 19, 2012, the ninth anniversary of the start of the Iraq war the American Friends Service Committee organized the community forum “Legacies of the Iraq War /Lessons for U.S.’s Iran Policy” at UMKC, Kansas City, MO. Panel members commented on the human, economic and political impacts of the Iraq war on Iraq and the U.S. They offered an analysis of U.S.- Iran relations, shared comment on how Iranians view the conflict and how identified lessons the U.S. should take from Iraq to guide U.S.- Iran policy.”

“Part #2”

[2] Sociologist Dr. Erik Olin Wright, as a utopian visionary, offers welcome alternatives to the current capitalist modes of production hurting the working classes the world over. Unfortunately, Dr. Wright’s analysis doesn’t reflect an interdisciplinary approach utilising literature in the field of economics, so he errs in his understanding of taxation and public spending.

Apparently, Dr. Wright lacks crucial knowledge of Modern Monetary Theory, or Modern Money Theory, which is relevant to his utopian work because it would correct some of his misguided economic assumptions, such as Dr. Wright’s assertion that a guaranteed income for all would have to be funded through taxation. As heterodox economist Dr. Stephanie Kelton teaches her students and audiences around the world:

Taxes don’t pay for anything. All modern money exists as an IOU. When the government prints a US dollar, it essentially prints an IOU, which—since the USA has gone off the gold standard—entitles its holder to get another US dollar or pay one dollar’s worth of tax liability. Dollars are no longer backed by gold, so one cannot hand in dollars and convert them to gold. So, when taxes are paid, those IOUs used to pay those taxes are, effectively, extinguished. Indeed, when US dollars return to the USA’s system of central banks, they’re shredded. So, taxes don’t pay for government spending. What actually pays for government spending is a sovereign currency issuer’s ability, such as that of the USA, to create its own currency out of thin air and use it for socially beneficial purposes.

Outside of Dr. Wright’s lack of knowledge of modern monetary theory, a survey of which would greatly benefit his analyses, he contributes welcome and radical concepts capable of shifting conventional wisdom.

Ultimately, Dr. Erik Olin Wright, essentially, advocates for society adopting the rules of the Monopoly board game, as an ideal for society. Everyone who passes Go gets an income allowance to allow them to keep playing the game of life within a capitalist mode of production until the wealth concentrates in such few hands that all but one player is driven into destitution. But Dr. Wright argues that a guaranteed income, within a capitalist mode of production, would only be a part of a longer-term process of building alternative structures to capitalist relations, which could be capable of gradually undermining capitalism.

Dr. Wright seems to follow the logic of a guaranteed income along moral and ethical lines. Unfortunately, his lack of knowledge of modern monetary theory leads him to fall prey to the conventional understanding of public spending, i.e. the myth that the federal government needs to collect taxes in order to spend the money it creates out of thin air. Citing MMT, Dr. Wright’s argument would be stronger. But nobody told Dr. Wright that taxes don’t pay for anything.

“Sanders adviser talks econ policy, politics” by Natalina Lopez, Yale Daily News, 17 NOV 2015 [N.B.: This campus and its journalism completely obfuscated the most revolutionary aspects of MMT. In fact, somehow, no mention is made of MMT at all.]

“Watch Out, MMT’s About, As Bernie Sanders Hires Stephanie Kelton” by Tim Worstall, Forbes, 12 JAN 2015 [N.B.: This journalist seems, however, to have never read of any of the literature on modern monetary theory (MMT), for he confuses and distorts the concepts, creating strawmen to attack and make possible his empty critiques of MMT.]